The Eleventh Circuit Court of Appeals recently analyzed the interplay between Florida’s Wrongful Death Act (WDA) and the federal Medicare Secondary Payer Act (MSPA). A case of first impression, Bradley v. Sebelius1 touched upon a variety of issues concerning Medicare’s attempted reimbursement from the decedent’s survivors, including: the taking of property without due process; the proper deference to be afforded for the decision-making of the U.S. Department of Health and Human Services (HHS); and, importantly, the deleterious effects that payments to HHS may have upon the ability of plaintiffs and defendants to settle their lawsuits.

The Eleventh Circuit acknowledged that an overbroad interpretation of the MSPA and overzealous collections practices by HHS may have a chilling effect on settlement and force tort claims to trial, thereby “burdening the court system,”2 which was an issue raised in a May 2010 Centerline article.3

The Medicare Secondary Payer Act

The Medicare Secondary Payer Act was enacted in 1980 with the legislative purpose of reducing federal healthcare costs “by transforming Medicare from the primary payer to the secondary payer, with a right of reimbursement.”4 Although Medicare often pays for the first level of care for a beneficiary, such payments are considered “conditional payments” (also referred to as Medicare liens) and the MSPA shifted the burden from Medicare to any “primary plan.”

Primary plans required to reimburse Medicare often include the beneficiary of the medical treatment, the beneficiary’s private insurer, or a private insurer for someone liable to the beneficiary.5 The MSPA provides that “if payment for covered services has been or is reasonably expected to be made by someone else,” such as the proceeds from a litigation settlement, “Medicare does not have to pay.”6

Background of Appeal

In Bradley, the decedent, Charles Burke, spent three months in a medical nursing home before he died, and his hospital bills, totaling $38,875.08, were covered by Medicare. Following Burke’s death, Carvondella Bradley, the personal representative of Burke’s estate, settled with the nursing home under Florida’s Wrongful Death Act for $52,500, the full amount of the nursing home’s insurance policy limits.

In an abundance of caution, Bradley notified HHS of the settlement and invited the Secretary of HHS to participate in probate proceedings to properly apportion the settlement amongst Burke’s survivors and Medicare. The Secretary, however, refused to participate in the probate proceedings and, relying on a field manual interpretation, declined to follow the Probate Court’s decision and directed the estate to pay to Medicare hospital fees under the MSPA, less procurement costs.

After exhausting her administrative remedies, Bradley brought her appeal to the Eleventh Circuit Court of Appeals to determine an issue of first impression defined by the court as: “Whose property is the settlement?”7 The court analyzed Florida’s WDA and found that under the statute, “damages allowed an estate are separate and distinct from damages recoverable by the deceased’s survivors.”8 Accordingly, the court determined that medical expenses and costs recovered by the estate were subject to the MSPA; however, the “non-medical tort property claims of the surviving Burke children for lost parental companionship, etc., under state law” were the rightful property of the survivors and not subject to the MSPA.9

Due Process Concerns

The Eleventh Circuit emphasized that returning a majority of the survivors’ settlement claim to HHS might “constitute a taking of their property with no process.”10 Although the Secretary of HHS argued that the survivors should be forced to “chip in” for the Medicare costs spent on behalf of their father, the court rejected this theory as unsupported by the federal statute and clearly contrary to state law. The court determined, “Medicare has not paid for or provided medical care for any of the children. None of the children contributed funds to pay for their father’s medical care and none were under any obligation to do so.” Importantly, the court stated that proceeds from a wrongful death action are not siphoned to the estate; instead, they are the property of the survivors as compensation for their loss – and are certainly not a property right of the HHS Secretary.11

After reiterating that Florida’s WDA provides a distinct cause of action for the survivors of the deceased, the court analyzed whether the applicable portions of the MSPA could apply to the survivors as primary plan beneficiaries. The court determined that “[n]owhere in the definition of primary plan are listed ‘surviving children with tort property beneficiary rights.’”12 While litigation proceeds ordinarily fall under the definition of a primary plan subject to reimbursement, the court made a clear distinction that under Florida law the proceeds were for the benefits of the survivors – not the estate. Accordingly, the Secretary’s reliance on the federal statute was unfounded in the record.

The court refused to give any deference to the Secretary’s decision to follow a field manual guideline and ignore the decision of the Probate Court. Under the field manual, “[t]he only situation in which Medicare recognizes allocations of liability payments to non-medical losses is when payment is based on a court order on the merits of the case.”13

Effect on Settlements

Notably, the opinion was buttressed with a public policy argument that may be echoed in future cases. The court stressed that overzealous recovery tactics by HHS, outside the realms of the federal statute, can have a chilling effect upon settlements in tort litigation. Acknowledging the benefits of settlement as a means to expeditiously resolve lawsuits, the court stated that the Secretary’s position “compels plaintiffs to force their tort claims to trial, burdening the court system. It is a financial disincentive to accept otherwise reasonable settlement offers. It would allow tortfeasors to escape responsibility.”14

The issues raised in Bradley are applicable to any wrongful death case, including those arising from aviation accidents, where the deceased incurs medical bills after the alleged tort but prior to his or her death. Under Bradley, which applied Florida’s WDA, the settlement funds to the survivors for their own losses, such as grief and loss of consortium, are not the property of HHS and not to be reimbursed to Medicare.

Importantly, the decision emphasizes that an overbroad interpretation of the MSPA is a major roadblock toward effective settlement negotiations to the detriment of plaintiffs, defendants and the judiciary. As a corollary, MSPA might also play a role as a deterrent to the filing of questionable lawsuits or small claims that are worth less than the amount of Medicare payments.